The Reliance of International Commercial Arbitration on State Interference

One of the defining characteristics of international commercial arbitration is the independence of arbitral institutions from state interference. Notably, the International Chamber of Commerce (ICC) Court of Arbitration, a transnational private institution that provides arbitration in the vast majority of cross-border commercial disputes worldwide, has developed universal procedural rules for arbitration entirely outside the influence of courts and legislatures. An increasing number of scholars and practitioners conclude that the private institutions of international commercial arbitration operate autonomously and thus independently from state influence.

Contrary to the prevailing view, this paper makes the seemingly paradoxical argument that, in international commercial arbitration, state interference is critical for attaining autonomy from the state. It distinguishes self-governance from self-reliance. That is, it points out that the capability of groups to self-regulate does not necessarily denote  independence from state regulation, but may in fact rely on it. Accordingly, the paper argues that the capability of the current global business community to stipulate and enforce its own private, transnational rules, is conditional on the readiness  of the majority of nation states to legally recognize and enforce arbitration agreements and arbitral awards.

The paper’s argument is both empirical and historical. It observes the practical needs of commercial arbitration in the early 1900’s. That period saw the birth of the current international legal framework under which today a majority of nation states choose to legally enforce cross-border commercial arbitration. Specifically, the paper looks to the practice of commercial arbitration in the State of New York in the so-called Progressive Era, at the beginning of the 20th century. This case study reveals that close-knit small trade communities successfully enforced arbitration agreements and arbitral awards themselves, when courts were still unwilling to do so. It also shows, however, that arbitral institutions that were established for the purpose of providing a general, cross-sectoral commercial arbitration, could not exist without the backing of the state’s mighty enforcement machinery. Hence, while both forms of commercial arbitration exemplified private self-governance, the latter practice of general arbitration was contingent on the state’s influence. For this reason, the paper proves why the ICC Court of Arbitration, founded in 1921 to provide cross-border, general commercial arbitration, could not succeed or even exist without states internationally agreeing to legally enforce arbitration agreements and arbitral awards.

On these grounds, the paper contends that, contrary to what is generally assumed, international commercial arbitration depends on state influence. It relies existentially on courts bestowing legal force on arbitration agreements and arbitral awards. Ultimately, in international commercial arbitration, autonomy from the state requires state interference.